Oil is getting demolished after inventories unexpectedly swell

An unexpected climb in US crude inventories wasn't the only shock factor in the Energy Information Administration's weekly report released Wednesday.

USA crude inventories fell 4.620 million barrels at the end of last week, the American Petroleum Institute (API) said on Tuesday, more than the 3.5 million barrels expected.

Moreover, data from industry group the American Petroleum Institute had suggested on Tuesday that US crude inventories fell by 4.6 million barrels.

July WTI crude shed 8 cents, or 0.2%, to settle $45.64 a barrel on the New York Mercantile Exchange.

The U.S. oil and gas industry, outside of OPEC's agreement, has increased production as 24 other oil producing countries have cut back.

Total gasoline inventories also increased by 3.3 million barrels last week, according to the EIA, and have moved above the upper limit of the five-year average range.

A campaign by leading Arab nations, including Saudi Arabia, Egypt and the United Arab Emirates, to isolate Qatar is disrupting trade in commodities, including oil. USA oil demand fell by 1.4 million barrel a day to 19.34 million barrel a day.

Brent crude LCOc1 was trading at $49.10 per barrel at 0244 GMT, down 37 cents, or 0.8 percent from their last close.

The sharp rise in USA inventories comes a day after the EIA lowered its crude oil price forecast and raised its US production outlook for 2018. But the EIA also reported a fall in crude production.

Although Qatar is a small oil producer, other OPEC states could see such an action as a reason to stop restraining their own output, traders said.

Reports of tension among OPEC members may also be playing into lower oil prices over the past week.

"The relentless increase in USA oil production appears to have the market anxious that the OPEC cuts will be completely nullified by the increased United States production", said William O'Loughlin, analyst at Rivkin Securities.

According to Vivek Dhar, mining and energy analyst at the Commonwealth Bank, this saw concerns surrounding oversupply in the USA market intensify, leading to the enormous selloff in WTI crude futures. Distillate product supplied averaged over 4 million barrels a day over the past four weeks, up by 1.8% compared with the same period previous year.

  • Zachary Reyes